Tax reliefs and incentives

Although not a driver for obtaining finance, tax reliefs and incentives can influence possible investors. Tax reliefs and incentives have been around for some time in various forms, and the informed investor or their adviser will be aware of how to use them to maximum effect.

Here we look at the most appropriate tax reliefs and incentives available in the UK today.

Entrepreneurs’ Relief (ER)Introduced on 6 April 2008 as the successor to Business Asset Taper Relief. In its current form, it allows a material disposal of business assets, subject to certain conditions, to qualify. For disposals made after 6 April 2011 the lifetime limit is set at £10,000,000, with any disposals being made under this limit to be taxed at the entrepreneurial rate of 10%. The business assets disposed need to have been owned for one year.

At the introduction of ER the lifetime relief was £1,000,000, which has since grown. This relief is deemed very generous, given that the higher rate of capital gains tax is 28% and income tax levels can be even higher (as much as 50%).

You can obtain further details from your accountant.

Seed Enterprise Investment Scheme (SEIS)Introduced on 6 April 2012, SEIS was developed to run alongside the existing Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT). It is only available to individual investors in very small companies and is therefore aimed more at start-up companies. For a company to qualify for SEIS it must have no more than 25 employees and its total assets cannot exceed £200,000.

The maximum amount an individual can invest through SEIS is £100,000 per tax year, and investors can claim both income tax and capital gains tax benefits. The maximum a company can raise each year through SEIS is £150,000.

See ACCA’s Guide to SEIS for more details, or talk to your accountant.

Enterprise Investment Scheme (EIS)EIS has existed in various guises since the early 1980s. In its current form it allows investments into small companies from 6 April 2012 of £1,000,000. It is only available to individual investors in small companies. For a company to qualify for EIS it must employee no more than 250 staff and its total assets cannot exceed £15,000,000 before the issue of EIS shares and £16,000,000 afterwards.

The maximum amount an individual can invest through EIS is £1,000,000 per tax year, and investors can claim both income tax and capital gains tax benefits. The maximum a company can raise each year through EIS is limited to £10,000,000.

Venture Capital Trust (VCT)Introduced in 1995 a VCT is effectively an extension of EIS. It invests in a number of EIS-type companies, spreading the risk. In its current form, VCTs allow individuals to invest £200,000 in a company in a tax year. From 6 April 2012 the total investment a VCT can make has been increased to £10,000,000.

For a company to qualify for a VCT its total assets cannot exceed £15,000,000 before the issue of EIS shares and £16,000,000 afterwards, and it must have no more than 250 employees.

An individual can invest a maximum of £200,000 per tax year, and investors can claim both income tax and capital gains tax benefits. The maximum a company can raise each year through VCT is limited to £10,000,000.

See ACCA’s Guide to VCTs for more information, or talk to your accountant.